Pavlos (pavlos) wrote,

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Adult material

So, in addition to making me part of the richest 1% of the human population, work offers a pension scheme to engender the illusion that I'll stay that way. It's a standard scheme of the type the British government established 3-4 years ago, citing demographic trends (too many old people relative to the working population). The essence of it is you invest in the stock market, the investment fund grows or shrinks while the fund managers cream off your money risk-free, and if the fund is worth anything when you're old you can withdraw money from it in a throttled way. It's a standard US/UK scheme, and by any reasonable political analysis, it's a con.

The theory is that Western societies are aging in the sense that, as people live longer, there are increasing numbers of old people to be fed and cared for compared to the people of working age. The old "Socialist" scheme of taxing the working generation to fund the care of the elderly (which is what National Insurance contributions actually do) cannot go on, we're told. People cannot "depend on the government to feed them", as if it's the government ministers themselves who would buy and cook the food. Instead, people must "provide for themselves", which of course means they should be compelled to invest in the stock market. This argument is just bogus.

Firstly, whatever happens, the productive generation of 2030 or so is going to have to generate goods and services to care for us when we're old. This is not because of some political or economic imperative but because of the fact that goods (with a few notable exceptions such as housing) and especially services simply don't keep for 30 years. The great majority of what has value needs to be generated close to the time of consumption. Under the so-called Socialist system, the productive generation of 2030 would be taxed to feed their elderly contemporaries. Under the brave new Capitalist system the pension fund managers will have to extract exactly the same amount from the workers of 2030 as dividends, or through some other coercive instrument. The burden per worker of 2030 will be the same.

Secondly, what does matter and is worth taking into account in making policy is not the population of workers in 2030 but their aggregate productive capacity (the GDP). The GDP in 2030 may be somewhat correlated to the size of the working population, but it'll probably be more correlated to other things such as technology and infrastructure. One could argue that the best way to maximize the GDP in 2030 is indeed for every person to invest in the stock market. But one could also argue, just as plausibly, that the best way is for the government to collect taxes and directly fund technology and infrastructure, or to collect taxes and subsidize industry in strategic ways. These might form useful arguments about how to tackle the demographic problem, but the government isn't making them.

The government's pension policy is going to achieve many worthwhile things: It will convert a social problem into an individual one while allowing the government to disclaim responsibility almost completely. It will coerce the population to inject massive amounts of cash into the investment funds, fuelling the growth and profits of the businesses owned by them. It is massively regressive, not merely removing the Socialist character of pensions but actually amplifying wealth inequality through Capitalist investment. It allows individual investors to bear all the risk while the financial institutions can profit safely (they take a percentage of your money regardless of what happens). And it is going to create inneficiencly and confusion as people struggle to figure out what's best for them. But despite all its great features the policy is not, by itself, addressing the demographic problem.

We should all move to France.


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